Small business owners make up 90% of all businesses in the United States today. Of that 90%, 17 million are family-run businesses. Small businesses make up 60% our workforce and produce 64% of the gross domestic product of the United States. Needless to say, they play a significant role in our economy, but sadly very few survive when they are passed from one generation to the next. As a matter of fact the latest statistics show that only 30% of all small businesses survive after being passed from the first generation to the second. Only 12% survive when the business is passed from the second generation to the third and only 3% are left when the small business is passed from the third generation on.
These are astonishing statistics considering the amount of time, energy, and effort that go into creating these entities by the first generation. The question then becomes why does this happen? Why do 70% of all small businesses die when the first generation that created them dies? Some may say that it is caused by the taxes that are levied by the federal government when a death occurs, but that is not entirely true. There are a few that will be dissolved due to taxes, but the main reason that most of these entities will not exist beyond the first generation is due to a failure to plan by the first generation.
We have found time and time again that small business owners are very good at what they do, but planning what to do with the business after they are gone is rarely one of their strong suites. If you are a small business owner, have you thought about some of the following?
- Do you have a buy/sale agreement?
- Who is going to take over the business after you are gone?
- Do you want all the family member’s to own and run the business?
- If you do want all of the family member’s to own and run the business how will that work out? Are some better managers than others? Are there other assets outside the business you can leave to some family members, leaving the business to specific individuals? Will those left with the business be able to get along with one another?
- Are you going to have voting and non-voting interests in the business?
- Do you have life insurance to help solve some of these issues?
- Is your family business going to go through probate when you die because the owner’s have not been changed to your trust?
- Does your business spell out what happens when you die?
The law firm of Morris Hall has been helping small businesses in Arizona since 1970. We help owners to solve these issues and many others like them to ensure that everything they have worked so hard for in developing and establishing the business is going to continue long after you have passed away. Please come in and see us so that we may help you to avoid becoming one of the 70% that will lose their business upon death.
Contributed by MH Flagstaff, Prescott, Sedona and Arrowhead Estate Planning Attorney and Partner David T. Eastman
What the Attorneys of Morris Hall Can Do For You:
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down. The attorneys also help those in Arizona and New Mexico to apply for and receive Medicaid assistance and Veterans Benefits. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead. Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.